As we move towards a new world of business, post the pandemic, without a doubt COVID-19 has severely disrupted supply chains on a global scale. Procurement leaders are having to maintain business operations, fulfill urgent demands, and mitigate supplier challenges against a backdrop of significant disruption to their teams and their partner ecosystem. Moving forward resilience will be the watchword and as CPOs start to think about the short and medium-term needs of the business, particularly around the supply base, unlocking innovation while ensuring business resilience will be key.
What challenges lie ahead for the CPO?
If we take a step back to consider the role of procurement, many might be forgiven for thinking that procurement is all about identifying needs and requirements, sourcing and evaluating suppliers, negotiating contract terms and generating cost savings while managing suppliers. But the role has changed significantly and today it is much more strategic, more aligned to the goals of the business and focused around delivering value. Particularly now, as uncertainties in global markets will lead to more complexities with suppliers, locking in the right partners at the right time at the right cost to deliver the right value for the business will be crucial. But more than this it is about harnessing the knowledge, expertise, and capabilities within the supply chain. CPOs are looking at how they can foster innovation with their partners. And with many digital transformation programmes underway as well as a host of new technologies – particularly AI and ML – so CPOs are having to learn, adapt and encompass these to modernise their working practices.
As we look to the second half of 2020 and beyond, a key challenge for the CPO will be around how to scale benefits across the supply chain and unlock opportunities. Likewise, they’ll be looking at how to improve data quality and visibility so that they have a handle on what is happening right across the supplier ecosystem. This will enable them to share best practice, resources and ideas with other parts of the business whilst avoiding duplication.
Social, environmental and economic pressure
The CPO will be under social pressure to ensure supplier diversity: buying from firms with wider diversity and purpose that avoids conditions such as modern slavery and protects human rights. They are also under increasing environmental pressure with global warming and demand for organisations to reduce their carbon footprint and ensure sustainable procurement. And without a doubt there will be significant economic challenges facing the CPO including helping to promote economic growth through local sourcing, supporting fair employment, avoiding any fraud and corruption and being acutely aware of sanctions.
Another key challenge for the CPO is around understanding the risk that the supply chain presents to the organisation from a security perspective. Third party supply chain risk has certainly attracted the attention of the board in recent times. We’ve seen some very high-profile breaches involving suppliers such as Marriott Hotels and M.E. Doc for example. Where M.E. Doc is concerned this crippled multinational companies from shipping giants Maersk to food producer Mondelēz and many more. At the time this attack was assumed to be highly sophisticated and a situation where the victims could have done little to prevent it. But that is not true; the fact was that M.E. Doc was simply not important enough in any of those large companies’ hierarchy of suppliers to be the focus of cyber risk scrutiny.
Understanding supplier risk
As a result of this and other attacks, now CPOs need to think about managing the end to end supplier lifecycle. They need to gain a better understanding of ‘my supplier risk’. This in itself has opened a lot of opportunities for the CPO because until recently boards haven’t tended to buy into and invest in this area, because it wasn’t deemed necessary. Having witnessed the impact on the companies who have experienced a supply chain breach, boards are now paying a lot more attention.
There has been a similar sense of apathy around supplier collaboration and innovation (SC&I), but this has and will come under the spotlight post pandemic as organisations struggle to get goods and products through their traditional supply chain and look at different ways of achieving this.
How Astellas has raised the procurement bar
A great example of SC&I is Astellas, a Japanese pharmaceutical company with a global procurement spend of $3.6 billion. Supplier innovation was happening with Astellas partners, but only in pockets. The CPO was tasked with looking at the performance of key partners and how to drive these relationships to deliver more value beyond just price. Astellas looked at how it could grow together with its partners and get innovation instilled, recognising that very few organisations were doing this effectively.
Astellas made the decision to move forward with our platform and, while it is still early stages, the organisation is already seeing benefits. Astellas has built strategic relationships with a small number of key suppliers to improve the operating model and make its approach more agile, focusing on simplifying some of the more complex jobs and automating some of the simplest tasks. It has been successful so far because Astellas has looked for a business case where both sides benefit and been very transparent with its suppliers. It has installed a process to drive innovation and made sure the decision makers within the business were on board from the start. Now with its partners it can think more creatively and this in turn will drive innovation and value.
The CPO’s role is pivotal to long-term success
Going forward organisations like Astellas need to balance the quarterly numbers with a long-term view that helps to create a sustainable and resilient supply chain. Driving value in the supplier ecosystems will be a board conversation. Likewise, organisations need to think about the wider stakeholder community and whether they are meeting their needs.
For some organisations this will be driven by consumer behaviour, for example, are they good companies to buy from? For others this will be driven by the demands of other stakeholders, such as investors, for example, does the organisation have good ESG ratings, or is its supply chain meeting environmental needs? That said, wherever procurement changes are being driven from, one thing is for sure, the role of the CPO will be pivotal.
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